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Listing system revisions

The Tokyo Stock Exchange (TSE) has announced that it is looking to revise its listing system to enhance investor protection by improving corporate information disclosure policies and taking appropriate measures against corporate activities that hinder market function.

On March 22 2006, the TSE announced the issues it would consider when revising the listing system and solicited opinions from a wide range of stakeholders, including investors and market players, both foreign and domestic. On June 22 2006, after considering these opinions, the TSE published a basic action plan and guidelines intended to improve the listing system, entitled "Development of a Comprehensive Improvement Program for the Listing System."

The action plan identifies a number of mechanisms that address the main issues. First, the TSE will change its rules so that timely disclosure of corporate information can be improved to increase market transparency. Currently, listed companies must disclose terms and conditions of corporate reorganizations such as share exchanges, share transfers, mergers and corporate splits upon the execution of these transactions. The TSE is contemplating requiring more detailed disclosure relating to these terms and conditions, such as the basis for calculating the relevant share ratios for corporate reorganizations, relationships with third-party organizations that determine these ratios, and pre-existing relationships between the listed company and its counterparty. The TSE will also request disclosure of additional information, such as legal opinions, not required under current disclosure requirements relating to issuance of shares, stock acquisition rights or bonds with stock acquisition rights where the issue price is set lower than the prevailing market price, or where moving-strike convertible bonds, which are bonds with stock acquisition rights whose convertible price changes after a certain period of time in a predetermined manner, are issued.

Secondly, the TSE will investigate whether the listing rules should expressly hold listed companies responsible for taking into consideration the impact of their corporate activities on the secondary market and rights of shareholders. Under the current system, the TSE is only allowed to request self-restraint in implementing large share splits. Instead, the TSE proposes to change the listing rules so that they specify that a large share split, which might cause confusion in the secondary market, could potentially conflict with a company's responsibilities to the secondary market and its shareholders and to consider measures to penalize any company engaging in such a large share split, including publicizing the details of it. In connection, the TSE is also considering revising the desirable price level of investment units, which is set at less than ¥500,000, to more than ¥50,000 and less than ¥500,000, to prevent confusion in the secondary market caused by excessive penny stock trading. For each of the items described above, outlines of the proposed amendments to the listing system will be finalized by the end of this year.

The TSE also has suggested reviewing the criteria for delisting a company. The delisting criteria, which were established in 1970, have been criticized recently as being vague and outdated. Critics say that more flexible measures are necessary, such as fines, reprimands and restrictions on services such as temporary suspensions of trading. The TSE will review the delisting criteria to identify any requirements that are not consistent with a modern stock exchange environment. In addition, the TSE will discuss alternatives to mandatory delisting to be used in circumstances such as minor infractions of the listing rules. The TSE plans to start formulating drafts of these items and expects to finalize these drafts by next year.

The TSE plan and guidelines should be reviewed and discussed by various parties, such as market participants, listed companies, lawyers, and accountants, as to whether the plan and guidelines are reasonable and effective for their purposes.

A copy of the action plan and guidelines can be found on the TSE website (

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